On 24 December 2020, the European Union (EU) and the United Kingdom (U.K.) reached an agreement in principle on the EU-U.K. Trade and Cooperation Agreement. In this GMS Flash Alert, we examine the Agreement’s measures for coordination of social security for mobile employees aimed at protecting the entitlements of EU citizens temporarily staying in, working in, or moving to the U.K., and of U.K. citizens temporarily staying in, working in, or moving to the EU after 1 January 2021.
On 24 December 2020, the European Union (EU) and the United Kingdom (U.K.) reached an agreement in principle on the EU-U.K. Trade and Cooperation Agreement1 (“the Agreement”). The Agreement entered into force on 1 January 2021, but the Agreement is currently undergoing a ratification procedure in the U.K. and in each EU member state. If and when the Agreement has been ratified in each EU member state, it must be approved in the EU parliament.
The EU Council must adopt the decision on the conclusion of the Agreement as the last step of the ratification process. The Agreement applies only to the 27 EU member states and the U.K. at this point.
All cross-border situations that are initiated on 1 January 2021 and thereafter are covered by this Agreement with respect to social security.
All cross-border situations initiated before 1 January 2021 are covered by the prior Withdrawal Agreement between the EU and the United Kingdom.2
Employers and employees should focus on the terms and conditions of social security coverage under the Agreement, because there are significant differences in that coverage and rights concerning social security, depending on whether a cross-border situation is covered by the Withdrawal Agreement or by the new Agreement.
On 1 January 2021, the U.K. left the EU Single Market and Customs Union, and EU policies are no longer applicable to the former EU member state. The departure of the U.K. from the EU will bring about important changes for businesses, citizens, public administrations, and stakeholders in the EU and the United Kingdom.
In order to limit the negative and extensive effects of the U.K.’s exit from the EU, the EU and the U.K. agreed on a Trade and Cooperation Agreement in principle that entered into force on 1 January 2021.
Below we highlight the important changes happening on 1 January 2021:
Similarly, the changes will affect the movement of persons, services, and goods from the EU to the United Kingdom.
The Agreement provides several measures for coordination of social security for mobile employees aimed at protecting the entitlements of EU citizens temporarily staying in, working in, or moving to the U.K., and of U.K. citizens temporarily staying in, working in, or moving to the EU after 1 January 2021.
Highlights from the Protocol on social security coordination:
It important to note that the Agreement does not apply the same scope of social security as the EU Regulations for coordination of social security systems in the EU.
Family benefits are no longer coordinated, which means that eligibility for family benefits and a right to export such benefits, for example during a posting, rest on national legislation in the relevant EU member state and the United Kingdom. There is therefore a significant risk that some employees will not be able to claim family benefits or that family benefits will be reduced or even awarded for a shorter duration.
On the other hand, it is reasonable to expect that claims for family benefits that are only subject to the Agreement will be processed faster than the case is today because the involved authorities will not have to communicate or coordinate family benefits in cross-border situations. The authorities will only have to take their local rules into account.
Furthermore, it should be noted that the exporting of unemployment benefits and disability benefits is also subject to national rules which can reasonably be expected to reduce the eligibility for and the amount of these benefits for some employees in a cross-border situation between the EU and the United Kingdom.
The Protocol for social security in the Agreement maintains the principle that only one state’s legislation for social security applies at a time for matters covered (above).
When assessing whether a person performs substantial activity in the country of residence, one must take into account the working situation as one can project it for the following 12 calendar months. This means that when a person performs work in more than one country on a permanent basis (over 12 months), one must only assess substantial work for 12 months at a time (annual applications for certificates of coverage).
In situations where a person pursues both employed and self-employed activity, the employed activity has priority and determines the applicable legislation for all working activity.
For invalidity, old-age, and survivors’ benefits, the person concerned may join the voluntary or optional insurance scheme of the state whose legislation does not apply, provided that the person at some stage in his or her career has been subject to the legislation of that state.
The same benefits-in-kind will be provided to the insured person and his or her family during a temporary stay in a state that is not competent for social security, provided that the benefits-in-kind are necessary on medical grounds, the person did not travel with the purpose of receiving the benefits-in-kind, and documentation for valid entitlement is presented.
One of the provisions stipulates that a state that requires withdrawal from or correction to the determination of the applicable legislation must receive a reply by the other state within 30 days.
Additionally, a joint committee for social security between the U.K. and the EU will be assisting with resolving the issues that might arise between the EU and the United Kingdom.
Although the provision on detached workers resembles the posting provision in Article 12(1) in Regulation (EC) 883/2004 for coordination of social security systems, there are significant uncertainties linked to this provision at this point.3
Firstly, the EU member states must opt in to apply the provision for detached workers by the end of January 2021. Only a few EU member states have opted in for this provision at this time. It is reasonable to expect that, if not all, then the majority of EU member states will opt in for this provision, but the specific procedure surrounding this provision indicates that this is not “business as we know it” from the EU legislation.
Secondly, the Agreement does not provide for an extension of the detachment/posting beyond 24 months. Another question that arises here is if when a detachment for 24 months is used once, does that mean that it cannot be used again in another detachment? If it can, on the other hand, what conditions must be met then?
Lastly, it is unclear what requirement will be presented for the duration of the affiliation to the social security in the sending country prior to the detachment. This could also lead to various approaches in different countries and ultimately lead to rejection of the application of social security in the sending country.
The provision on work in more than one country (so-called “multi-state work”), resembles Article 13 in Regulation (EC) 883/2004 to a large extent.
However, the European Court of Justice has recently ruled in cases that have changed the interpretation of this provision, and there are pending cases that could add to the changes in how this cross-border situation is coordinated in the context of social security in the EU. For example, the concept of employer4 has to be clarified. As these rulings no longer apply to the U.K., it is reasonable to expect differences in how countries apply this provision.
This means that an identical situation might have different outcomes depending on the country that assesses the case. This adds to the uncertainty of the social security position for persons in a cross-border situation. As more time passes, it is reasonable to expect that such differences in the interpretation and the application of this and other provisions will increase between the countries.
The Agreement essentially limits the restrictions and limitations that the U.K.’s exit from the EU presents to the movement of people, companies, goods, capital etc.
It is clear from the Protocol on social security in the Agreement that social security between the EU and U.K. is changing significantly and the full effect of these changes will become more evident in time.
The Withdrawal Agreement has regulated, among other things, social security between the EU and the U.K. from 1 February 2020 until 31 December 2020 (when the U.K. formally left the EU). The Withdrawal Agreement made it possible for persons in a cross-border situation to continue benefiting from the more generous social security coverage under the EU Regulations.
Although the Withdrawal Agreement regulated the relationship between the EU and the U.K. until 31 December 2020, in the context of social security it is stated that persons who are covered by the Withdrawal Agreement can continue benefiting from the Withdrawal Agreement after that date as long as their situation is uninterrupted.
Employers and employees should therefore investigate the possibility of continuing the more generous coverage for social security under the Withdrawal Agreement and avoid the application of the social security rules in the new Agreement as long as possible, depending on the corresponding benefits to the employees.
This can be a complicated technical task and different EU member states seem to be approaching the interpretation of (un)interrupted cross-border situations differently; thus, concerned individuals and employers should consider engaging relevant technical expertise on these important matters.
The restrictions in the new Agreement are expected to trigger a reassessment of the compensation and benefits for employees affected by Brexit. The changes in social security are relevant for any discussion about compensation and benefits for employees affected by the provisions of the Withdrawal Agreement and the new Agreement and should undergo careful analysis and form part of any revision of company policies.
1 Full text: Trade and Cooperation Agreement between the European Union and the United Kingdom. Note that there might be additional bilateral conditions between the U.K. and Ireland, the U.K., Gibraltar and Spain, and the U.K. and Switzerland, etc.
2 For related coverage of Brexit and the Withdrawal Agreement and immigration matters for U.K. nationals, see our other Brexit reports in GMS Flash Alert at: https://home.kpmg/xx/en/home/insights/2015/09/flash-alert-brexit.html.
For more on the EU-U.K. Withdrawal Agreement, see: https://ec.europa.eu/info/european-union-and-united-kingdom-forging-new-partnership/eu-uk-withdrawal-agreement_en. Also see: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1580206007232&uri=CELEX%3A12019W/TXT%2802%29 .
4 See GMS Flash Alert 2020-325, 21 July 2020.
* Please note the KPMG International member firm in the United States does not provide immigration or labour law services. However, KPMG Law LLP in Canada can assist clients with U.S. immigration matters.
The information contained in this newsletter was submitted by the KPMG International member firm in The Netherlands.
To subscribe to GMS Flash Alert, fill out the subscription form.
© 2021 KPMG Meijburg & Co., a Netherlands partnership and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.